Crazy8 Ltd is a public company listed on the NSE Ltd. Crazy8 Ltd imports and sells eccentric toys such as jumping castles for adults and miniature poker sets for children.

Crazy8 Ltd leases a low-value asset under a lease agreement with the following terms (the company elected, in terms of IFRS 16, not to capitalize the contract):

Lease term: 10 years (1 August 2010 – 31 July 2020)

Lease payments: First 12 months:

1 August 2011 – 31 July 2016

1 August 2016 – 31 July 2020

N$200 per month N$150 per month N$100 per month

All lease payments are payable monthly in arrears and include VAT at 14%. Crazy8 Ltd accounted for the lease as follows:

Financial year ended 31 December 2010:

Lease expense (P/L)

Bank

Lease payments: N$200 x 5 months

N$ DR

1 000

1 000

You may assume an unchanged normal tax rate of 29%. no journal entries relating to taxation have been processed by Crazy8 Ltd. All lease installments were paid timeously.

Assume that all amounts are material.

Required:

a) Provide adjusting journal entries (you may ignore current tax implications) for the financial year ended 31 December 2010. You may not reverse or re-record any journal entries that were posted by Crazy8 Ltd. 

b) Provide originating journal entries (you may ignore current tax implications) for the financial year ended 31 December 2011.